May 25 (Bloomberg) -- Kenneth Lay and Jeffrey Skilling, who built Enron Corp. into the nation's seventh-largest company and then drove it into bankruptcy, were convicted of orchestrating a fraud that made the energy trader the symbol of corporate deceit in America.

Jurors in federal court in Houston deliberated six days before finding Lay, Enron's former chairman, and Skilling, its former chief executive officer, guilty today of fraud, conspiracy and other charges for lying to investors about the company's finances. The panel heard four months of testimony before reaching its verdict.

``The government will not let corporate leaders violate their trust and get away with it,'' said Sean Berkowitz, head of the Justice Department's Enron Task Force, which conducted the prosecution. ``You can't lie to shareholders and put yourself in front of your employees' interests.''

Lay, 64, and Skilling, 52, face at least 25 years each in prison after being convicted of using off-the-books partnerships to disguise Enron's debts. Skilling faces additional jail time over his conviction for using inside information to sell Enron stock. Lay was also convicted on bank fraud charges after a trial that U.S. District Judge Sim Lake held without a jury while the panel in the main case deliberated.

``Obviously I'm not real happy with this,'' Skilling said after the verdict. ``It is what it is.'' Skilling maintained his innocence and his lawyer, Daniel Petrocelli, said he would appeal.

Passport Surrendered

Lake said he would sentence the defendants on Sept. 11. Skilling is allowed to remain free on $5 million bond and doesn't have to be put in ``home confinement'' as prosecutors sought, Lake said.

Lay surrendered his passport after the judge said he wasn't allowed to leave the courthouse until he did so. Lay posted a $5 million bond, co-signed by his wife and children and held by the deeds to the family's remaining real estate. He's restricted to living in Colorado and the southern district of Texas, and the routes to and from those places.

``I firmly believe I'm innocent of the charges against me,'' Lay said outside the courtroom. ``We believe God in fact is in control and he does indeed work all things for the good.''

Both men face spending the rest of their lives in prison if they are given maximum sentences. After the verdict was announced, the color drained from Lay's face and his wife and daughter burst into tears. Skilling pressed his lips together and shook his head. Skilling's wife wasn't in the courtroom.

``We've had a trial, and obviously it did not come out the way we hoped,'' Petrocelli said. ``It doesn't change our view of what happened at Enron. And it certainly doesn't change our view of Jeff Skilling's innocence.''

Government Crackdown

Enron, once the world's largest energy trading firm, had more than $68 billion in market value before its December 2001 bankruptcy filing wiped out thousands of jobs and at least $1 billion in retirement funds virtually overnight. Investors suing over the company's collapse claim accounting fraud at the Houston-based firm caused at least $25 billion in losses.

``I think investors can feel validated in that the legal system worked here,'' said Mark Ross, partner at Sichenzia Ross Friedman Ference. ``On a bigger picture, it will instill confidence back in the capital markets in America.''

In the wake of Enron's meltdown, government prosecutors cracked down on corporate crime. CEOs of WorldCom Inc., HealthSouth Corp., Adelphia Communications Corp. and Rite Aid Corp. were prosecuted for accounting fraud or looting company treasuries. All were convicted of fraud except HealthSouth founder Richard Scrushy, who now is on trial on unrelated bribery charges in Alabama.

Punish Bad Apples

We should ``punish the bad apples and that's obviously what happened in Texas,'' said Senator Paul Sarbanes, a Maryland Democrat. Sarbanes is the co-author of the Sarbanes-Oxley Act of 2002, passed to improve corporate reporting. ``They undermined confidence in our markets.''

Jurors convicted Skilling of 19 counts of conspiracy to commit fraud, wire and securities fraud, making false statements to auditors and insider trading. They acquitted him of nine other counts of insider trading. The panel also convicted Lay of six counts of conspiracy to commit fraud, and wire and securities fraud.

Lake also found Lay guilty of four counts of bank fraud and making false statements to banks in a separate case over the former executive's handling of $75 million in loans.

Real Jail Time

``It's safe to say each of them is facing north of 20 years real jail time,'' said Kirby Behre, a former federal prosecutor and co-author of Federal Sentencing for Business Crimes. The calculation of the size of the fraud will play a part in determining the exact sentence. ``There's going to be a mini- trial on sentencing issues.''

Prosecutors should feel vindicated as well, said Behre, now a partner at Paul Hastings Janofsky & Walker in Washington. ``This case epitomizes a new paradigm of corporate criminal prosecutions. We now hold the highest-level executives responsible for the misconduct of the company. These two guys are as high as they get.''

Enron contributed nearly $6 million to federal parties and candidates between 1989 and 2001, more than two-thirds to Republicans, according to OpenSecrets.org, the Web site of the Center for Responsive Politics.

`Kenny Boy'

More than $2 million of that money came during the 1999-2000 election cycle, when the company became one of the biggest backers of President George W. Bush's bid for the White House. Lay personally raised at least $100,000 for the campaign, and Bush used to refer to him by the nickname ``Kenny Boy.''

White House spokesman Tony Snow said today the Justice Department was to be congratulated for concluding a ``highly complex'' case. ``The administration has been pretty clear, there's no tolerance for corporate corruption,'' Snow said when asked about the guilty verdicts.

Former Chief Financial Officer Andrew Fastow told jurors Skilling helped orchestrate a scheme to use off-the-books partnerships to hide billions in losses and debts racked up by the company. Other executives said Lay took over the effort to deceive investors about Enron's finances after Skilling stepped down as CEO.

Lawyers for the two men argued that prosecutors sought to criminalize normal business practices and that their clients were victims of thieving subordinates like Fastow.

Glisan Effective

Fastow, who pleaded guilty to fraud charges stemming from Enron's collapse, told jurors that Skilling encouraged him to set up the partnerships to ``juice'' the company's earnings and help meet quarterly forecasts. Fastow agreed to serve 10 years in prison for committing fraud at the company.

The defense sought to discredit Fastow, noting he'd stolen more than $20 million from Enron in partnership-related deals and had hidden his actions from Skilling and Lay.

Former Enron Treasurer Ben Glisan testified that Skilling endorsed using the partnerships to overvalue assets and disguise losses and touted them because they allowed the company to ``circumvent accounting rules.'' Glisan pleaded guilty to fraud charges and is serving five years in prison. After the verdict was announced, a juror said the jury referred to Glisan's testimony throughout its deliberations.

Glisan said Lay assigned him in August 2001, after Skilling left as CEO, to lobby credit-rating companies to allow the company to write off more than $1 billion in losses without suffering a debt rating downgrade.

Life on the Line

Other witnesses, including former Enron investor relations executives Mark Koenig and Paula Rieker, testified that Lay misled analysts about the performance of some of the company's units as the firm deteriorated in the fall of 2001.

Lay and Skilling took the witness stand to try to convince jurors they hadn't presided over fraud at Enron and that prosecutors strong-armed their former colleagues into testifying against them.

Skilling, who told jurors his ``life was on the line'' in the case, said the government investigation of Enron became a ``witch hunt'' that resulted in the charges against him and Lay.

Skilling denied being part of any effort to manipulate earnings and dismissed Fastow as a thief and a liar. He sparred with prosecutors, accusing them of twisting facts about Enron's performance to blame the company's demise on him and Lay.

Preacher Father

Lay, whose father was a Missouri farmer and a Baptist preacher, earned a masters degree in economics from the University of Missouri in 1965. After a stint with Humble Oil in Houston, he joined the Navy in 1968 and worked as a purchasing officer at the Pentagon.

After the Navy, Lay worked at the Federal Power Commission and then the Department of the Interior. After that he joined Florida Gas Co., eventually becoming president. He moved to Transco Energy Co. in 1981 and joined Houston Natural Gas Corp. in 1985, where he was chief executive officer.

In 1985, Houston Natural Gas merged with Omaha, Nebraska- based InterNorth Inc., another pipeline company, and Enron was born.

`It's a stunning verdict,'' said John Carney, a former federal prosecutor now at Baker & Hostetler. ``It's the end of a chapter but not the end of a book. Enron was an icon of American business. Ken Lay was one of the most revered and respected CEOs in the country. To see him go like that is probably one of the greatest falls in business history.''

McKinsey

Skilling joined McKinsey & Co., a management consulting firm,, after his 1979 graduation from Harvard Business School. McKinsey counted Enron's predecessor, InterNorth, as a client, and Skilling joined Enron in 1990. He became president and chief operating officer in 1997 and chief executive officer in February 2001, upon Lay's initial departure from the company, only to quit in August.

``I've had my fingers, my legs and everything else crossed hoping this verdict would come down in the manner and form that it has,'' said Raymond Plank, chairman of Houston-based oil and gas producer Apache Corp. ``I feel justice has been served. My primary interest is to see them serve a long, long sentence.''

The case is U.S. v. Skilling, 04-cr-25, U.S. District Court, Southern District of Texas (Houston).

To contact the reporters on this story: Jef Feeley in Wilmington Delaware at jfeeley@Bloomberg.net; Laurel Brubaker Calkins in Houston at (1) laurel@calkins.us.com.

Last Updated: May 25, 2006 17:47 EDT